Thoughts on global gold mine supply

Tom Brady

Former Chief Economist Newmont Mining Corporation

19 September, 2017

Tom Brady is Chief Economist at Newmont Mining Corporation. Having undertaken rigorous analysis of the drivers of historical and recent growth spending patterns in the industry, Brady believes that gold supply will gradually decline over the coming years.

The most recent period of significant growth in mine supply began in 2009, driven by a period of prolonged gold price increases.

In 1900, global gold mine supply totalled just 12 million ounces. By 1970, it had reached 50 million ounces, primarily buoyed by exploration success, particularly in the Witwatersrand in South Africa.

Over that 70-year period, South African mines generated approximately 45% of total gold mine supply and in 1970, they were responsible for 70% of the global total. The following decade however, South African supply fell almost 20% as mining companies encountered lower grades at traditional operations. As a result, global mine supplies drifted lower too.

The situation changed again in the 1980s. Mine supply bounced back, as new processing techniques such as heap leaching, carbon-in-leach and carbon-in-pulp became increasingly widespread, allowing mining companies to extract profitably gold from lower-grade and more complex ore types.

Substantial advances in mining equipment and practices also buoyed supply. Caterpillar haul truck capacities, for example, rose from approximately 150 tonnes in 1984 to over 360 tonnes in 1998.1

Newmont’s Carlin area mines in Nevada exemplify the way in which advances in technology and equipment have driven production. In operation since the 1960s, the mines produced approximately 130,000 ounces of gold in 1965, with reserve grades of well over 0.3 ounces per ton. By the 1980s, grades had declined to well below 0.1 ounces per tonnes. Following the completion of Newmont’s first heapleaching operation in 1979, however, mining of large low-grade deposits, combined with larger equipment, allowed production to reach more than 1.5 million ounces by the end of the 1980s. By the early 1990s, the Gold Quarry pit at Carlin became the first mine to produce over a million ounces of gold in a single year.

Such advances allowed global mine supply to more than double in the 80s and 90s, reaching 85 million ounces in 2001.

The most recent period of significant growth in mine supply began in 2009, driven by a period of prolonged gold price increases, from slightly over US$250 per ounce in 2001 to well over US$1,700 per ounce in 2012. This period of sustained gold price gains allowed mining companies to expand exploration and project development budgets aggressively and global mine supply climbed to nearly 93 million ounces. Chinese mine supply was another key driver as output from China more than doubled from less than 6 million ounces in 2002 to over 13 million ounces in 2012.

Exploration spending and gold price trends

Soaring prices at the turn of the century were the principal reason for the most recent surge in gold mine supply but this is not a new phenomenon. Exploration spending has long reflected gold price trends. When prices begin to climb, exploration is ramped up; when they trend downwards, activity follows suit relatively rapidly.

In 2002, for example, exploration spend was just US$80 million. It then increased by 25% per annum to a peak of nearly US$10 billion in 2012.2 Since then, global gold exploration spending has declined by over 65%, falling to US$3 billion in 2016.3 Exploration spending at Newmont has followed very similar trends, rising from less than US$40 million in 2001 to a peak of nearly US$360 million in 2012 and since falling back to below US$150 million last year.

When prices begin to climb, exploration is ramped up; when they trend downwards, activity follows suit relatively rapidly.

The inherent lag between price and mine supply

There is a significant difference between exploration spend and mine supply however. While exploration spending responds fairly rapidly to gold price trends, it takes many years for mine supply to react.

While exploration spending responds fairly rapidly to gold price trends, it takes many years for mine supply to react.

Miners typically continue to complete development projects that are already in progress even if prices trend lower4 and they begin to relax cost-cutting related programmes, only once prices stabilise and start to tick upward. In the 1990s, for example, real gold prices peaked at around US$550 in 1996, after which there was a sustained period of aggressive price declines.5 But global mine supply only began to flatten and then trend lower in 2001, a lag of more than a half decade. A similar multi-year lag occurred when
prices trended upwards in the early 2000s and mine supply only began to recover in 2009. In recent years, even as gold prices have retreated from their most recent highs in 2012, global mine supply has continued to climb, reaching nearly 104 million ounces in 2016.

The time lag arises primarily because mining is a long term business. It takes years to advance a prospective property through exploration, feasibility studies and project approvals, to commercial production. 

The Merian gold mine in Suriname, jointly owned by Newmont and the government, provides a graphic illustration of this trend.6 Merian’s previous owner, a subsidiary of Alcoa, first applied for an exploration permit in 1999, with drilling activities commencing in 2000. In 2003, an initial resource of approximately 180,000 ounces was defined. That same year, Alcoa halted the initial exploration programme, seeking to partner with an experienced gold focused company. Following the finalisation of a joint venture agreement with Newmont, exploration started up again and an initial discovery was declared in 2005. Over the next seven years, exploration continued to expand both reserves and resources. Key investment and other agreements were approved by the government in 2013 and the project received construction approval from the Newmont Board in 2014. Commercial production at Merian finally began in 2016 –17, years after the initial exploration programme and more than a decade after the initial discovery was declared.

Expectations for gradually lower mine supply going forward

Looking ahead, I expect global gold mine supply will gradually decline over the coming years, driven by the recent downward trend in prices, a reduction in exploration spend and a decline in development projects. I do believe, however, that the scale of decline will be gradual. Between the mid-1990s and early 2000s, industry mine supply dropped by approximately 1% annually. It is likely to be similar this time round.


  1. Currently, the largest CAT truck is the 797F with approximately 400 tons of hauling capacity.

  2. This corresponds to a period when gold prices averaged less than US$400 per ounce to well over US$1,700 per ounce (in real $2016 U.S. dollar terms).

  3. This aggressive change in exploration spending is not unprecedented as similar spending declines occurred in the late 1980s as well as from 1997 through 2002, when cumulative spending dropped by 75%.

  4. In addition, aggressive cost-cutting and productivity-improvement programs implemented across mining companies may allow marginal mines to remain active during initial phases of a downtrend.

  5. A key driver of this price drop was the lack of an investment thesis for gold as many central banks (primarily in Europe) sold and/or liquidated their gold reserves.

  6. Newmont has a 75% interest in Merian, with the remaining 25% owned by Staatsolie, an oil company which is owned by the government.

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